Institutional Investor Advocacy Group Proposes Limits to Multi-Class Voting by Delaware Companies
The Council of Institutional Investors (CII), an investor advocacy association primarily for pension funds and local governments, has put forth a proposal to amend the Delaware General Corporation Law to limit the ability of publicly-traded Delaware corporations to maintain multi-class common stock voting structures (i.e., high-vote/low-vote stock structures).
In summary, CII is proposing that a multi-class voting structure sunset no later than seven years after an IPO, a shareholder adoption or an extension vote approved by a vote of a majority of outstanding shares of each class, voting separately. CII’s seven-year sunset period is intended to recognize multi-class voting could have short-term benefits in certain circumstances, without what they consider “long-lasting unaccountability.”
While not new, multi-class voting structures have gained increased attention in recent years as a series of founder-led “unicorn” technology companies have gone public with high-vote/low-vote (or no-vote) structures. High-vote shares held by WeWork co-founder Adam Neumann were cited among other investor concerns around the company’s now-delayed planned IPO.
CII had previously, in October 2018, petitioned the New York Stock Exchange and NASDAQ to adopt similar limitations. Whether this proposal will gain traction with other investors or Delaware lawmakers is yet to be seen.
CII’s full proposal is available here.